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Inside Washington (07/01/2011)

* ALEXANDRIA, Va. (7/5/11)--Noting that “overcoming the effects of the economic downturn remains a challenge for most credit unions,” National Credit Union Administration (NCUA) Chairman Debbie Matz last week said that NCUA examiners “are working diligently with credit union management and boards to mitigate existing and potential risks to maintain stable balance sheets.” Matz, in the agency’s most recent report on the state of the credit union industry (11-CU-07) also previewed some of the agencies supervisory priorities going forward. The NCUA chairman noted that credit risk, which “continues to constrain many credit unions’ performance,” will remain a focus of examinations this year. Matz said that real estate, business, and participation loan delinquencies “remain elevated,” and “real estate and business loan modifications have increased.” Credit unions should closely monitor any loan modifications in their portfolio, she said. Interest rate risk and concentration risk should also be closely monitored by credit unions, and the NCUA will “continue to take proactive steps to protect the safety and soundness of the credit union industry,” Matz said … * ALEXANDRIA, Va. (7/5/11)--The National Credit Union Administration (NCUA) for the second consecutive day expanded the scope of its disaster relief policy as flooding continued to threaten parts of Missouri. The agency on June 30 expanded its policy after severe weather and flooding impacted areas of Montana, Nebraska, Indiana, Kansas and Iowa. The NCUA in recent months has also reached out to aid credit unions and members in North Dakota, Tennessee and Minnesota, and the southeast. The agency's disaster relief policy is intended to assist credit unions and their members to deal with potential losses, and allows for altered loan terms for members and guaranteed lines of credit for some credit unions … * WASHINGTON (7/5/11)--National banks should conduct a self-assessment of foreclosure management practices by Sept. 30, the Office of Comptroller of Currency (OCC) said in guidance issued Thursday. The self-assessments should include testing and file reviews and be appropriate in scope, considering the level and nature of the bank’s mortgage servicing and foreclosure activity, the OCC said. In the fourth quarter of 2010, the OCC, the Federal Reserve, the Federal Deposit Insurance Corp., and the Office of Thrift Supervision conducted reviews of foreclosure processing at 14 federally regulated mortgage servicers. The agencies found weaknesses in servicers’ foreclosure governance processes, foreclosure documentation preparation processes, and oversight and monitoring of third-party vendors, including attorneys. As a result, the OCC is advising banks to review their foreclosure policies to ensure that they treat borrowers fairly and are in compliance with foreclosure laws. Banks can expect regulators to conduct a thorough review of these self-assessments the next time they are examined, the OCC said … * WASHINGTON (7/5/11)--Observers questioned the public nature of a letter sent by the Treasury Department to Office of the Comptroller of Currency (OCC) criticizing the OCC’s pre-emption plan (American Banker July 1). Critics say the public critique violated the spirit if not letter of the law prohibiting the administration from delaying or derailing rulemaking. Bob Clarke, a former comptroller and a senior partner with Bracewell & Giuliani LLP, suggested it would have been more appropriate for Treasury to speak with the OCC rather than issuing a public comment letter. While the OCC is nominally under the Treasury Department, it is an independent agency with a leader appointed by the president and confirmed by the Senate. Donald Lamson, a former OCC official and a partner with Shearman & Sterling LLP, said it appears as if there was a lack of communication between the two agencies. Conversations, both formal and informal, are part of the rulemaking process, Lamson said … * WASHINGTON (7/5/11)--Capital rules written for large banks may also apply to small institutions, Federal Deposit Insurance Corp (FDIC) Chairman Sheila Bair said during a Senate Banking Committee hearing Thursday. Bair, who will leave the FDIC Friday, also defended prompt corrective action in the face of an oversight report criticizing it (American Banker July 1). While the quality of capital definitions of Basel III was created for global banks, Blair said they should apply to banks of all sizes. “The competitive position of small and mid-sized institutions has been steadily eroded over time by the government subsidy attached to the Too Big to Fail status of the nation’s largest banks,” Bair said. “In the first quarter of this year, the cost of funding earning assets was only about half as high for banks with more that $100 billion in assets as it was for community banks with assets under $1 billion” …